Question 1

A dividend paid out of profits earned after the acquisition date is known as a:

Accepted Answer

A)  final dividend. 
B)  pre-acquisition dividend. 
C)  post-acquisition dividend. 
D)  temporary dividend. 
A)  final dividend. 
B)  pre-acquisition dividend. 
C)  post-acquisition dividend. 
D)  temporary dividend.

Question 2

On 5 June 2022, a parent entity sold inventories to a subsidiary entity for $80 000. The inventories had previously cost the parent entity $72 000. All the inventories are still held by the subsidiary at reporting date, 30 June 2022. Ignoring tax effects, the adjustment entry in the consolidation worksheet at reporting date is:

Accepted Answer

A)  $$\begin{array} { l l l l } 
\text { Cash } & \mathrm { Dr } & 72,000 & \
\quad \text { Sales reverue } & \mathrm { Cr } & & 72,000 \
\text { Cost of sales } & \mathrm { Dr } & 72,000 & \
\text { Irventories } & \mathrm { Cr } & & 72,000
\end{array}$$ 
B)  $$\begin{array} { l l l l } 
\text { Sales reverule } & \mathrm { Dr } & 72000 \
\text { Cash } & \mathrm { Cr } & & 72000\
\text { Irvertories } & \mathrm { Dr } & 72000 &  \
\text { Cost of sales } & \mathrm { Cr } & &72000
\end{array}$$ 
C)  $\begin{array}{ccr}
\text { Sales revenue } & \mathrm{Dr} \quad 80,000 & \
\text { Cost of sales } & \mathrm{Cr} & 8,000 \
\text { Inventories } & \mathrm{Cr} & 72,000
\end{array}$
Inventories 
D)  $\begin{array}{ccc}
\text { Sales revenue } & \mathrm{Dr} \quad 80,000 & \
\text { Cost of sales } & \mathrm{Cr} & 72,000 \
\text { Inventories } & \mathrm{Cr} & 8000
\end{array}$ 
A)  $$\begin{array} { l l l l } 
\text { Cash } & \mathrm { Dr } & 72,000 & \
\quad \text { Sales reverue } & \mathrm { Cr } & & 72,000 \
\text { Cost of sales } & \mathrm { Dr } & 72,000 & \
\text { Irventories } & \mathrm { Cr } & & 72,000
\end{array}$$ 
B)  $$\begin{array} { l l l l } 
\text { Sales reverule } & \mathrm { Dr } & 72000 \
\text { Cash } & \mathrm { Cr } & & 72000\
\text { Irvertories } & \mathrm { Dr } & 72000 &  \
\text { Cost of sales } & \mathrm { Cr } & &72000
\end{array}$$ 
C)  $\begin{array}{ccr}
\text { Sales revenue } & \mathrm{Dr} \quad 80,000 & \
\text { Cost of sales } & \mathrm{Cr} & 8,000 \
\text { Inventories } & \mathrm{Cr} & 72,000
\end{array}$
Inventories 
D)  $\begin{array}{ccc}
\text { Sales revenue } & \mathrm{Dr} \quad 80,000 & \
\text { Cost of sales } & \mathrm{Cr} & 72,000 \
\text { Inventories } & \mathrm{Cr} & 8000
\end{array}$

Question 3

During the current period, Ambrose Limited sold inventories to its parent entity at a profit of $12 000. The inventories cost Ambrose Limited $36 000. At balance sheet date the parent had sold 50% of the inventories to an external party. The consolidation adjustment entry (excluding tax effects) will eliminate unrealised profit amounting to:

Accepted Answer

A)  $1 000. 
B)  $18 000. 
C)  $6 000. 
D)  $36 000. 
A)  $1 000. 
B)  $18 000. 
C)  $6 000. 
D)  $36 000.

Question 4

Kateri Ltd sold an item of plant to its subsidiary, Patrick Ltd, on 1 January 2022 for $50 000. The asset had cost A Ltd $60 000 and had a useful life of 6 years when acquired on 1 January 2020 from an external party. The adjustment necessary on consolidation to reflect the tax effect of the depreciation adjustment for the year ended 30 June 2022 will result in an increase in:

Accepted Answer

A)  deferred tax assets. 
B)  income tax expense. 
C)  current tax liability. 
D)  deferred tax liabilities. 
A)  deferred tax assets. 
B)  income tax expense. 
C)  current tax liability. 
D)  deferred tax liabilities.

Question 5

During the year ended 30 June 2022, a subsidiary entity sold inventories to a parent entity for $50 000. The inventories had previously cost the subsidiary entity $45 000. By 30 June 2022 the parent entity had sold 75% of the inventories to a party outside the group. The company tax rate is 30%. The adjustment entry in the consolidation worksheet at 30 June 2023 is:

Accepted Answer

A)  $$\begin{array} { l l c r } 
\text { Sales reverue } & \mathrm { Dr } & 50000 \
\text { Cost of sales } & \mathrm { Cr } & & 48750 \
\text { Irventories } & \mathrm { Cr } & & 1250 \
\text { Deferred tax asset } & \mathrm { Dr } & 375 & \
\text { Income tax expense } & \mathrm { Cr } & & 375
\end{array}$$ 
B)  $$\begin{array} { l l l } 
\text { Retained earnings } & \mathrm { Dr } & 3500 \
\text { Income tax expense } & \mathrm { Dr } & 1500 \
\text { Cost of sales } & \mathrm { Cr } &5000
\end{array}$$ 
C)  $$\begin{array} { l l l } 
\text { Retained earrings } & \mathrm { Dr } & 875 \
\text { Incorne tax expense } & \mathrm { Dr } & 375 \
\text { Cost of sales } & \mathrm { Cr } &1250
\end{array}$$ 
D)  $$\begin{array} { c l c c } 
\text { Retained earnings } & \mathrm { Dr } & 1250 \
\text { Irventories } & \mathrm { Cr } & 1250 \
\text { Deferred tax asset } & \mathrm { Dr } & 375  \
\text { Retained earnings } & \mathrm { Cr }  & 375
\end{array}$$ 
A)  $$\begin{array} { l l c r } 
\text { Sales reverue } & \mathrm { Dr } & 50000 \
\text { Cost of sales } & \mathrm { Cr } & & 48750 \
\text { Irventories } & \mathrm { Cr } & & 1250 \
\text { Deferred tax asset } & \mathrm { Dr } & 375 & \
\text { Income tax expense } & \mathrm { Cr } & & 375
\end{array}$$ 
B)  $$\begin{array} { l l l } 
\text { Retained earnings } & \mathrm { Dr } & 3500 \
\text { Income tax expense } & \mathrm { Dr } & 1500 \
\text { Cost of sales } & \mathrm { Cr } &5000
\end{array}$$ 
C)  $$\begin{array} { l l l } 
\text { Retained earrings } & \mathrm { Dr } & 875 \
\text { Incorne tax expense } & \mathrm { Dr } & 375 \
\text { Cost of sales } & \mathrm { Cr } &1250
\end{array}$$ 
D)  $$\begin{array} { c l c c } 
\text { Retained earnings } & \mathrm { Dr } & 1250 \
\text { Irventories } & \mathrm { Cr } & 1250 \
\text { Deferred tax asset } & \mathrm { Dr } & 375  \
\text { Retained earnings } & \mathrm { Cr }  & 375
\end{array}$$

Question 6

Which of the following statements is incorrect?

Accepted Answer

A)  Where the transferred assets are depreciable, adjustments are made to depreciation accounts (for the current period depreciation) and/or to the retained earnings account (for the previous periods' depreciation). 
B)  Adjustments for the gain/loss on intragroup sale of property, plant and equipment are made in all periods after the sale. 
C)  As depreciation reflects the use of the asset by the group, the depreciation adjustments are realising a part of the gain/loss on the intragroup sale of property, plant and equipment. 
D)  As the intragroup sale of property, plant and equipment impacts on the profit and the carrying amount of assets, adjustments for the tax effects are also required. 
A)  Where the transferred assets are depreciable, adjustments are made to depreciation accounts (for the current period depreciation) and/or to the retained earnings account (for the previous periods' depreciation). 
B)  Adjustments for the gain/loss on intragroup sale of property, plant and equipment are made in all periods after the sale. 
C)  As depreciation reflects the use of the asset by the group, the depreciation adjustments are realising a part of the gain/loss on the intragroup sale of property, plant and equipment. 
D)  As the intragroup sale of property, plant and equipment impacts on the profit and the carrying amount of assets, adjustments for the tax effects are also required.

Question 7

Changes in accounting standards since 2008 require all dividends:

Accepted Answer

A)  from a subsidiary to be accounted for by the parent as revenue. 
B)  from post-acquisition equity to be accounted for by the parent as revenue. 
C)  from pre-acquisition equity to be accounted for by the parent as a return on investment in the subsidiary. 
D)  from a subsidiary to be accounted for by the parent as a return on investment in the subsidiary. 
A)  from a subsidiary to be accounted for by the parent as revenue. 
B)  from post-acquisition equity to be accounted for by the parent as revenue. 
C)  from pre-acquisition equity to be accounted for by the parent as a return on investment in the subsidiary. 
D)  from a subsidiary to be accounted for by the parent as a return on investment in the subsidiary.

Question 8

On 1 July 2021, Xavier Ltd rents a warehouse for one year from its subsidiary, Gabrielle Ltd, for $60 000. The company tax rate is 30%. The consolidation adjustment entry needed at 30 June 2023 is:

Accepted Answer

A)  $$\begin{array} { c l c c } 
\text { Profit ard loss surninary } & \text { DR } & 60000 & \
\text { Retained earnings } & \text { CR } & & 60000 \
\text { Income tax expense } & \text { DR } & 18000 & \
\text { Deferted tax liability } & \text { CR } & & 18000
\end{array}$$ 
B)  $$\begin{array} { c l c c } 
\text { Profit ard loss surrinary } & \text { DR } & 60000 & \
\text { Retained earnings } & \text { CR } & & 60000 \
\text { Deferred tax asset } & \text { DR } & 18000 & \
\text { Income tax expense } & \text { CR } & & 18000
\end{array}$$ 
C)  Profit and loss surrimary$\quad$$\mathrm { DR }$$\quad$60000
Retained earmings$\quad$$\mathrm { CR }$$\quad$60000 
D)  No entry is required at 30 June 2023. 
A)  $$\begin{array} { c l c c } 
\text { Profit ard loss surninary } & \text { DR } & 60000 & \
\text { Retained earnings } & \text { CR } & & 60000 \
\text { Income tax expense } & \text { DR } & 18000 & \
\text { Deferted tax liability } & \text { CR } & & 18000
\end{array}$$ 
B)  $$\begin{array} { c l c c } 
\text { Profit ard loss surrinary } & \text { DR } & 60000 & \
\text { Retained earnings } & \text { CR } & & 60000 \
\text { Deferred tax asset } & \text { DR } & 18000 & \
\text { Income tax expense } & \text { CR } & & 18000
\end{array}$$ 
C)  Profit and loss surrimary$\quad$$\mathrm { DR }$$\quad$60000
Retained earmings$\quad$$\mathrm { CR }$$\quad$60000 
D)  No entry is required at 30 June 2023.

Question 9

Which of the following statements is incorrect?

Accepted Answer

A)  Adjustments are required for both prior period and current period intragroup transactions to the extent that the effects of those transactions are still present in the individual accounts of the entities involved. 
B)  The profits or losses generated from intragroup transfers of assets are considered realised from the group's perspective until such movement when those assets are transferred to external entities. 
C)  Adjustments are determined by comparing the amounts recognised in the individual accounts affected with the amounts that the group should recognise. 
D)  When adjustments for intragroup transactions affect the carrying amount of assets or liabilities, further adjustments are made for the tax effect of those adjustments. 
A)  Adjustments are required for both prior period and current period intragroup transactions to the extent that the effects of those transactions are still present in the individual accounts of the entities involved. 
B)  The profits or losses generated from intragroup transfers of assets are considered realised from the group's perspective until such movement when those assets are transferred to external entities. 
C)  Adjustments are determined by comparing the amounts recognised in the individual accounts affected with the amounts that the group should recognise. 
D)  When adjustments for intragroup transactions affect the carrying amount of assets or liabilities, further adjustments are made for the tax effect of those adjustments.

Question 10

When a subsidiary declares a final dividend payable to a parent who has a 100% interest in the subsidiary, the parent recognises a dividend receivable and the subsidiary recognises a dividend payable. In addition to the elimination of these two items on consolidation, the following items must also be eliminated:

Accepted Answer

A)  Dividend revenue and Cash. 
B)  Dividend declared and Cash. 
C)  Dividend declared and Dividend revenue. 
D)  Dividend declared and Retained earnings. 
A)  Dividend revenue and Cash. 
B)  Dividend declared and Cash. 
C)  Dividend declared and Dividend revenue. 
D)  Dividend declared and Retained earnings.

Question 11

When eliminating an intragroup service, which of the following entries would appear in the consolidation worksheet entry?

Accepted Answer

A)  CR Income tax expense. 
B)  CR Deferred tax liability. 
C)  DR Services expense. 
D)  DR Services revenue. 
A)  CR Income tax expense. 
B)  CR Deferred tax liability. 
C)  DR Services expense. 
D)  DR Services revenue.

Question 12

During the year ended 30 June 2022, a subsidiary entity sold inventories to a parent entity for $50 000. The inventories had previously cost the subsidiary entity $45 000. By 30 June 2022 the parent entity had sold all the inventories to a party outside the group. The company tax rate is 30%. The adjustment entry in the consolidation worksheet at 30 June 2023 is:

Accepted Answer

A)  $\begin{array}{llr}\text { Sales revenue }&\mathrm{Dr}&50,000\
\text { Cost of sales } & \mathrm{Cr} && 45,000 \
\text { Inventories } & \mathrm{Cr} && 5,000\
\text { Deferred tax asset }&\mathrm{Dr}&1,500\
\text { Income tax expense }& \mathrm{Cr}&&1,500\
\end{array}$ 
B)  $\begin{array}{lll}
\text { Retained earnings } & \text { Dr } & 3500 \
\text { Income tax expense } & \mathrm{Dr} & 1500 \
\text { Cost of sales } & \mathrm{Cr} &5000
\end{array}$ 
C)  $$\begin{array} { c l c c } 
\text { Retained earriirigs } & \mathrm { Dr } & 5000 \
\text { Irventories } & \mathrm { Cr } & & 5000 \
\text { Deferted tax asset } & \mathrm { Dr } & 1500 & \
\text { Retained earriirgs } & \mathrm { Cr } & & 1500
\end{array}$$ 
D)  No entry is required 
A)  $\begin{array}{llr}\text { Sales revenue }&\mathrm{Dr}&50,000\
\text { Cost of sales } & \mathrm{Cr} && 45,000 \
\text { Inventories } & \mathrm{Cr} && 5,000\
\text { Deferred tax asset }&\mathrm{Dr}&1,500\
\text { Income tax expense }& \mathrm{Cr}&&1,500\
\end{array}$ 
B)  $\begin{array}{lll}
\text { Retained earnings } & \text { Dr } & 3500 \
\text { Income tax expense } & \mathrm{Dr} & 1500 \
\text { Cost of sales } & \mathrm{Cr} &5000
\end{array}$ 
C)  $$\begin{array} { c l c c } 
\text { Retained earriirigs } & \mathrm { Dr } & 5000 \
\text { Irventories } & \mathrm { Cr } & & 5000 \
\text { Deferted tax asset } & \mathrm { Dr } & 1500 & \
\text { Retained earriirgs } & \mathrm { Cr } & & 1500
\end{array}$$ 
D)  No entry is required

Question 13

The adjustments included in the consolidation worksheet are:
I. pre-acquisition entries
II. business combination valuation entries
III. elimination of the effects of intragroup transactions

Accepted Answer

A)  I, II and III 
B)  I and II only 
C)  I only 
D)  II only 
A)  I, II and III 
B)  I and II only 
C)  I only 
D)  II only

Question 14

On 1 July 2021, Zoe Ltd sold equipment to its subsidiary, Nate Ltd, for $80 000. The equipment had a carrying amount at the time of sale of $70 000. The equipment was depreciated by Zoe Ltd at 10% p.a. on cost, while Nate Ltd applies a rate of 8%. The consolidation worksheet entry for the year ended 30 June 2022 would include the following adjustment in relation to depreciation:

Accepted Answer

A)  DR Depreciation expense $1 000 CR Accumulated depreciation $1 000 
B)  DR Accumulated depreciation $1 000 CR Depreciation expense $1 000 
C)  DR Depreciation expense $800 CR Accumulated depreciation $800 
D)  DR Accumulated depreciation $800 CR Depreciation expense $800 
A)  DR Depreciation expense $1 000 CR Accumulated depreciation $1 000 
B)  DR Accumulated depreciation $1 000 CR Depreciation expense $1 000 
C)  DR Depreciation expense $800 CR Accumulated depreciation $800 
D)  DR Accumulated depreciation $800 CR Depreciation expense $800

Question 15

Which of the following statements is incorrect?

Accepted Answer

A)  the effects of intragroup transactions need to be eliminated in full. 
B)  the effects of intragroup transactions that need to be eliminated are those related to the current profit. 
C)  the adjustments for the elimination of the effects of intragroup transactions may need to be repeated in subsequent periods. 
D)  the effects of intragroup transactions are recognised in the individual statements of financial position and/or the individual statements of comprehensive income. 
A)  the effects of intragroup transactions need to be eliminated in full. 
B)  the effects of intragroup transactions that need to be eliminated are those related to the current profit. 
C)  the adjustments for the elimination of the effects of intragroup transactions may need to be repeated in subsequent periods. 
D)  the effects of intragroup transactions are recognised in the individual statements of financial position and/or the individual statements of comprehensive income.

Question 16

A parent entity group sold a depreciable non-current asset to a subsidiary entity for $5 300. The asset originally cost $7 000 when acquired from an external party and at the date of the intragroup sale the accumulated depreciation was $2 200. The amount of the unrealised gain on the intragroup sale to be eliminated is:

Accepted Answer

A)  $500. 
B)  $2 200. 
C)  $4 800. 
D)  $5 300. 
A)  $500. 
B)  $2 200. 
C)  $4 800. 
D)  $5 300.

Question 17

With regards to services provided within the group:

Accepted Answer

A)  there will be an increase in deferred tax assets. 
B)  there will be an increase in income tax expense. 
C)  the consolidation adjustments do not affect the group's profit. 
D)  the group's profit equals service revenue less service expense. 
A)  there will be an increase in deferred tax assets. 
B)  there will be an increase in income tax expense. 
C)  the consolidation adjustments do not affect the group's profit. 
D)  the group's profit equals service revenue less service expense.

Question 18

Rachel Ltd provided an advance of $100 000 to its subsidiary Marion Ltd. Interest of $10 000 was charged during the year ended 30 June 2021. On consolidation, the following adjustment is needed at 30 June 2021 in relation to the interest charged:

Accepted Answer

A)  no adjustment needed. 
B)  DR Interest expense $10 000 CR Interest revenue $10 000 
C)  DR Retained earnings $10 000 CR Cash $10 000 
D)  DR Interest revenue $10 000 CR Interest expense $10 000 
A)  no adjustment needed. 
B)  DR Interest expense $10 000 CR Interest revenue $10 000 
C)  DR Retained earnings $10 000 CR Cash $10 000 
D)  DR Interest revenue $10 000 CR Interest expense $10 000

Question 19

The realisation of the profit or loss on a depreciable asset transferred within the group:

Accepted Answer

A)  occurs only when the asset is sold to an external party. 
B)  results in an inconsistent pattern with the allocation of depreciation of the asset. 
C)  is assumed to occur only when an external entity becomes directly involved with the asset. 
D)  is assumed to occur when the future benefits embodied in the asset are consumed by the group. 
A)  occurs only when the asset is sold to an external party. 
B)  results in an inconsistent pattern with the allocation of depreciation of the asset. 
C)  is assumed to occur only when an external entity becomes directly involved with the asset. 
D)  is assumed to occur when the future benefits embodied in the asset are consumed by the group.

Question 20

During the current period, Rosina Limited paid an interim dividend of $60 000 to its parent entity, Anastasia Limited. If the tax rate is 30%, what would be the adjustment made in the consolidation entry to record the tax effect of this transaction at the end of the period?

Accepted Answer

A)  DR Deferred Tax Asset $18 000. 
B)  DR Income Tax Expense $18 000. 
C)  CR Deferred Tax Liability $18 000. 
D)  There is no tax effect entry required. 
A)  DR Deferred Tax Asset $18 000. 
B)  DR Income Tax Expense $18 000. 
C)  CR Deferred Tax Liability $18 000. 
D)  There is no tax effect entry required.

Exam 28: Consolidation: Intragroup Transactions

A dividend paid out of profits earned after the acquisition date is known as a:

Which of the following statements is incorrect?

Changes in accounting standards since 2008 require all dividends:

On 1 July 2021, Xavier Ltd rents a warehouse for one year from its subsidiary, Gabrielle Ltd, for $60 000. The company tax rate is 30%. The consolidation adjustment entry needed at 30 June 2023 is:

Which of the following statements is incorrect?

When eliminating an intragroup service, which of the following entries would appear in the consolidation worksheet entry?

The adjustments included in the consolidation worksheet are: I. pre-acquisition entries II. business combination valuation entries III. elimination of the effects of intragroup transactions

Which of the following statements is incorrect?

With regards to services provided within the group:

Rachel Ltd provided an advance of $100 000 to its subsidiary Marion Ltd. Interest of $10 000 was charged during the year ended 30 June 2021. On consolidation, the following adjustment is needed at 30 June 2021 in relation to the interest charged:

The realisation of the profit or loss on a depreciable asset transferred within the group:

During the current period, Rosina Limited paid an interim dividend of $60 000 to its parent entity, Anastasia Limited. If the tax rate is 30%, what would be the adjustment made in the consolidation entry to record the tax effect of this transaction at the end of the period?

Accounting Regulation and the Conceptual Framework

Application of Accounting Theory

Fair Value Measurement

Inventories

Property, Plant and Equipment

Intangible Assets

Impairment of Assets

Provisions, Contingent Liabilities and Contingent Assets

Employee Benefits

Leases

Financial Instruments

Income Taxes

Share Capital and Reserves

Share Based Payment

Revenue

Presentation of Financial Statements

Statement of Cash Flows

Accounting Policies and Other Disclosures

Earnings Per Share

Operating Segments

Related Party Disclosures

Sustainability and Corporate Social Responsibility Recording

Foreign Currency Transactions and Forward Exchange Contracts

Translation of Foreign Currency Financial Statements

Business Combinations

Consolidation: Controlled Entities

Consolidation: Wholly Owned Entities

Consolidation: Non-Controlling Interest

Consolidation: Other Issues

Associates and Joint Ventures

Joint Arrangements

Insolvency and Liquidation

Accounting for Mineral Resources

Agriculture

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